Thailand native Supap Kirtsaeng, a mathematics student at the University of Southern California, noticed that some of the college textbooks he used and sampled from his local college bookstore were selling at a lower price in Thailand than here in the United States. To him, it was the ideal arbitrage opportunity and allowed him to buy the books in Thailand and sell them in the U.S. It worked so well that it earned him around $1 million. The underlying publishers were Wiley and some other rivals, and the size of his revenue caught their attention.
Unfortunately for the enterprising student, Wiley sued him for copyright infringement and won the case. A judge in Manhattan on the Second U.S. Circuit Court of Appeals ordered Kirtsaeng to pay the company $600,000. The case is still being fought and has moved up the judicial ladder, with the U.S. Supreme Court to decide on the case soon. A 1998 Supreme Court decision has already made it possible for the original copyright owner to profit from the original sale of merchandise. This is now known as the first-sale doctrine and generally applies to U.S.-made products.

First-Sale Doctrine
The unfavorable ruling against Kirtsaeng represents a twist on the first-sale doctrine and was made with the conclusion that the doctrine doesn't apply to goods made overseas. Basically, anything produced outside of the U.S. doesn't fit the doctrine's original purposes. This has huge ramifications for the secondary marketplace.

If the Supreme Court rules against Kirtsaeng and in favor of Wiley, consumers who sell goods on eBay or any secondary marketplace could face copyright infringement charges for any products made overseas. This will lead to huge uncertainty. It is not always certain where goods are made, and products these days contain parts from around the world. It brings up many questions, such as if the final place of assembly counts as the country of origin, or if a certain percent of the raw materials are made overseas, for instance.

Firms including eBay, Costco and secondhand stores are clearly supporting Kirtsaeng and hope the first-sale doctrine is applied to all goods internationally. Other copyrighters that are subject to frequent piracy, including firms that own media rights to recorded music, film and related entertainment, would like to see more stringent restrictions on the sale of their goods in the secondary market. As such, they would like to see Wiley prevail.

Secondhand Marketplaces Paying Attention
If Wiley does win, consumers would have to get approval from the original manufacturer to sell a good online, to a secondhand store or another consumer. If manufacturers don't grant approval, it could grind these marketplaces to a halt. Manufacturers could also choose to be difficult and make the approval overly difficult or slow, which would also adversely impact the market.

On the flip side, going after their own customers could prove challenging. For starters, it would be extremely bad for business. It would also be cumbersome and nearly impossible to track down all potentially illicit activities. Legal fees could pile up, especially since copyrighting a product isn't that difficult, and it is doubtful whether pursuing legal action would be economical in many cases. Going after someone who sold a $10 DVD is hardly worth pursuing. The recorded music industry tried to go after consumers when illegal downloads of music took off on the Internet, but the strategy turned off customers and did little to dent illegal downloading activity.

The Bottom Line
A Supreme Court ruling in favor of Wiley would greatly complicate the buying and selling of used goods on the secondary market. No one is putting odds on which decision will be reached, but it seems logical that the first-sale doctrine should apply to both domestic and foreign items.

Photo Courtesy of cytech

Related Articles
  1. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  2. Credit & Loans

    Co-signing a Loan? Make Sure You Know The Risks

    Contractually, co-signers are just as responsible for the loan as the person actually borrowing the money. Be careful not to put yourself at risk.
  3. Investing

    Trends In Copyright Litigation

    The Internet has resulted in an explosion in content. An increasing number of copyright trolls are monetizing such content through litigious practices.
  4. Taxes

    What's IRS Form 2848 Used For?

    It's a power of attorney tax form and here's what it can, and cannot, do.
  5. Investing

    Is Airbnb Safe? What You Need To Know

    Thinking of booking a room or listing your home on Airbnb? Get up to speed on safety features for both guests and hosts.
  6. Personal Finance

    Top 5 Ways to Retain Your Best Employees

    You need to think beyond salary to make the most talented people want to stay on for the long term.
  7. Taxes

    Gay Couples: Here Are Your New Rights

    The expansion of same-sex marriage means gay and lesbian partners can now enjoy basic spousal rights, regardless of where they live.
  8. Taxes

    Gay Marriage and Taxes: Everything You Should Know

    Same-sex couples now have a variety of tax strategies to consider.
  9. Investing

    Can You Be Sued for Negative Comments Online?

    It's important to understand the basics of libel law so you can avoid posting statements that might result in a lawsuit.
  10. Investing Basics

    Is Your Broker Churning Your Account?

    Is your broker churning your account to generate fees? Here's how to know and what recourse you have.
RELATED TERMS
  1. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  2. Slander

    Slander is the act of harming one person’s reputation by telling ...
  3. Libel

    Libel is publishing a statement about someone in written form ...
  4. Defamation

    Defamation is any statement (written or spoken) that damages ...
  5. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  6. PCI Compliance

    Technical and operational standards that businesses are required ...
RELATED FAQS
  1. How do I find a good personal bankruptcy lawyer?

    While it is not necessary to hire an attorney to file bankruptcy, the rules that govern bankruptcy can be extremely complex, ... Read Full Answer >>
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Full Answer >>
  3. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Full Answer >>
  4. Are there regulations against monopolies?

    A monopoly occurs when a single company or group owns all or nearly all of the market for a particular type of product or ... Read Full Answer >>
  5. What is the Dodd-Frank Act? How does it affect me?

    The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by ... Read Full Answer >>
  6. Can a company be state-run and publicly traded at the same time?

    A state-run company or enterprise cannot be publicly traded in the U.S. However, it is possible to purchase shares of state-run ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!